How have "big food" companies responded to the organic/natural food movement?

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How have "big food" companies responded to the organic/natural food movement?

Hi there, and thanks for asking Wonder! I understand you'd like an overview of how the 'big food' companies have responded to the organic and natural food movement, including case studies of high-profile companies. The most useful sources I found to answer your question were a lengthy industry analysis by the New York Times, and articles by the Financial Times and Fortune. In short, Big Food has responded to the organic and natural food movement by buying up successful organic/natural startups; leveraging its political lobbying clout to ward off unfavorable regulations; and transitioning its ingredient lists. Less prominent trends include encouraging its consumers to eat its products more moderately, and integrating successful entrepreneurial elements into corporate culture. While most of the information below pertains to companies headquartered in the US, it should be noted that many of these corporations are multi-national in their retail scope. Below you'll find a deep dive into my research findings.


IN BRIEF

US Big Food companies have extensive political clout, both in DC and elsewhere: during the Obama administration, Big Food leaders successfully polished their PR image by nominally signing on with First Lady Obama's Partnership for a Healthier America program, while the Big Food lobbying arm simultaneously derailing the administration's exploratory efforts to regulate it. Big Food has also successfully funded the defeat of multiple state attempts to mandate GMO-labeling. Nonetheless, this seems to be an attempt to curtail the extent of the disruption rather than head it off altogether, as Big Food companies are still subject to the ever-strengthening trend of consumer preferences for organic and natural foods. "68% of global consumers wanted to recognize every ingredient on the label, and 40% desired food made with as few ingredients as possible." This trend is largely driven by the millennial demographic, and has hit Big Food revenue sheets hard for several years.

Buying up successful natural/organic startups appears to be the most prominent trend; some larger conglomerates are even funding VC incubators for natural food startups, most notably Campbell's and General Mills. The other significant trend is transitioning ingredient lists, by removing objectionable ingredients and replacing them with natural ones.


POLITICAL LOBBYING

In 2009, First Lady Obama installed an "organic vegetable garden on the White House lawn," which generated considerable pushback from various elements of the Big Food industry, particularly the chemicals (pesticide/herbicide) industry. The administration then quickly followed with an anti-trust initiative investigating Big Meat, and promised to "make sure the playing field is level for producers." The Big Meat lobbying arm - The North American Meat Institute - responded by dropping $9 million dollars in lobbying funds to successfully defeat the new proposed regulations.

The following year (2010), First Lady Obama gave a 'stern' speech to the Grocery Manufacturers Association, admonishing the industry that 'tweaks' in labeling and nominal ingredient substitutions were insufficient: "This isn’t about finding creative ways to market products as healthy. As you know, it’s about producing products that actually are healthy.” The industry took note, and responded with pre-emptive action to avoid potential regulatory fallout: industry leaders publicly partnered with the Partnership for a Healthier America program, while their political lobby simultaneously worked aggressively to successfully "score a series of victories" against disadvantageous regulatory proposals in the years that followed. Big Food has also spent millions of dollars to defeat state-by-state GMO labeling mandates.

ACQUIRING BRANDS

Acquiring successful natural and organic startup brands has become the primary go-to response among Big Food companies. In part, this is due to the problem of transitioning legacy products high in ingredients to which consumers are increasingly adverse (sugar, salt and artificial ingredients). Trust in Big Food products is low among consumers who orient toward natural ingredients; so rather than re-make the flagship brand products, which also requires a significant change in corporate culture, Big Food companies are opting to acquire existing, successful natural brands. General Mills leads in this endeavor: it is "the third-largest natural and organic food maker in the U.S., and is now among the top five organic ingredient purchasers — and the second largest buyer of organic fruits and vegetables in North America." Not surprisingly, it is also on the forefront of the VC incubator scene. Campbell's is also a strong leader in both brand acquisition and VC startup funding, although the company CEO is unusually forthright about her perspective that successfully weathering the natural/organic disruption requires a fundamental change in corporate food culture.


INGREDIENT TRANSITION

After buying up natural and organic startups, ingredient transition is the second most frequently-mentioned Big Food response to the food movement. Coca-Cola, Mars, Nestle, Modalez, Kraft, and Hershey are several examples. Hershey in particular is transitioning "more than 500 product SKUs to simpler ingredients," and has also committed itself to increased transparency by using SmartLabel, though critics have denounced smart labels as limiting consumer access to information at the point of purchase.

Changing ingredients is no small endeavor, however. Changes that result in different flavors or textures can set up the product for abysmal failure, such as the sugar-free Cadbury Highlights chocolate bar; and consumers may misunderstand the new marketing on modified products, as happened with Coca-Cola Zero. Kraft took a different approach: it made the ingredient switch from artificial to natural flavoring in its signature boxed Mac n Cheese without any marketing whatsoever. Industry experts consider this a 'high-risk strategy' that could jeopardize consumer trust in the brand, but sales figures in the months following the transition were steady.


OTHER TRENDS

Less-extensive Big Food responses include encouraging consumers to eat less of high-calorie/sugar/salt/fat foods, which strategy appears to be based on the perspective that a reduced market share is sufficient compensation for remaining in the market at all. It also alleviates the need to reformulate signature and/or legacy products, which can involve significant changes beyond the science of food taste and texture. Another smaller trend is keeping the entrepreneurial elements of acquired startups intact, either by allowing the startup to continue functioning as a independent unit, or by earnestly incorporating the successful elements of the entrepreneurial culture. The former strategy has been successful for General Mill, while the latter seems to be primarily the province of Campbell's.


CASE STUDIES

After exhaustive research through food industry resources and reputable media articles, I was unable to locate pre-compiled, specific case studies on Campbell's, Hershey, and General Mills, which I chose to profile based on their prominence throughout my research. I have therefore provided a composite analysis of my research for each company's response to the food movement.


CAMPBELL'S ANALYSIS

Campbell's CEO Denise Morrison has been the most vociferous proponent of the need to change Big Food corporate culture in order to survive the organic and natural food disruption in the industry. Her position is that the industry must align its values with that of the natural food movement, including "transparency, being purpose-driven, plain-labeled GMO claims, animal welfare concerns, supply chain traceability, fresher food, clean labels and ingredients, and more." To this end, the company bought Bolthouse Farms in 2012, made its president "the head of Campbell’s new “packaged fresh” division," and "launched a $125 million venture capital fund to invest in food startups" in 2016. Other organic/natural acquisitions followed. However, its investment in Bolthouse has proven a bit rocky: Q4 2015/16 sales plummeted with lower-then-expected carrot revenue and a Bolthouse product recall.


GENERAL MILL'S ANALYSIS

General Mill's has become a significant player in the organic/natural products market: it is the third-largest producer of organic/natural products and the second-largest commercial consumer of organic produce in North America. The conglomerate also recently signed a multi-year contract with Organic Valley to source organic milk. In the face of a national (US) shortage of organic milk, the agreement includes a provision by which GM will subsidize the cost for conventional dairy farmers to transition to organic production. GM intends to use this increased supply to support its expansion into organic yogurt, which it has identified as having significant growth potential. GM has also invested heavily in VC funding for organic and natural food startups. GM has publicly acknowledged that its VC arm - 301 INC - is a funnel channel for acquisition. GM's most notable acquisition to date - Annie's - is flourishing, which Annie's president attributes to GM's decision to give the subsidiary extensive autonomy.


HERSHEY ANALYSIS

Hershey has made a monumental commitment to transition to natural ingredients for its entire product line - without changing the taste experience. This presents a challenge for the consistency of the products, as several key ingredients can be quite variable by batch, notably vanilla. This also entails fundamentally "changing the supply chain." However, Hershey's CEO believes this is necessary to stay relevant in the industry. At the moment, Hershey is absorbing the cost increase of these changes; and there was no available media coverage of the revenue impact. This latest is just the most recent in a list of sustainability- and transparency-oriented initiatives at Hershey: in 2013, it started sourcing sustainable cocoa; and in 2015, it committed to "cleaning up the ingredients in more than 80 brands."


CONCLUSION

To wrap it up: Big Food companies are responding to the natural and organic food movement by leveraging their collective political power to curtail regulations in the US; by acquiring successful natural startups; and by transitioning to natural ingredients in their products. Campbell's, General Mill and Hershey are three prominent examples of the latter two trends. Thanks so much for using Wonder, and please let us know if there is anything else we can research for you!
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